Posted by: Bruce Einhorn on September 8, 2008
In his China column on MarketWatch Craig Stephen writes investors are worried the Chinese government might nix Coke’s proposed $2.4 billion takeover of Huiyuan, the country’s top juice maker: “Rumblings are that, after inking a new competition law earlier this year, mainland officialdom is itching to give it a run out. Now the market is worried the deal may be shelved, as Huiyang’s shares retreated Friday.” They’ve got reason to be concerned, since China does have a new anti-monopoly law and just how regulators go about enforcing it remains unclear.
That said, though, I think the Chinese are going to give this one the green light. As my BusinessWeek colleague Nanette Byrnes points out in her Management IQ blog, Coke earned lots of brownie points for the company’s Olympic sponsorship. Coke not only showed it was a friend of China by sponsoring the Games themselves, it also stuck with the Chinese government during the lead up to Beijing as a sponsor of the torch relay, which pro-Tibet and other activists targeted for protests. It’s probably no coincidence that Coke announced this deal just after the Games ended, with good will toward the company at its high point.
There’s another reason the Chinese government will want to approve the deal, a reason that has nothing to do with the Olympics. As some of the reader comments to my story last week point out, a state-owned Chinese oil company was interested in acquiring Unocal, a deal that fizzled due, in part, to security concerns from the U.S. side. Despite that setback, Chinese companies are looking overseas for acqusitions, a process that Beijing wants to promote. Lenovo is the most high-profile example, of course, with its purchase in 2005 of IBM’s PC division. If Beijing’s regulators give their blessing to Coke’s Huiyuan deal, that would be a pretty painless way for China to show that it’s open to foreigners coming in and taking over local companies. That willingness to play ball could in turn help Beijing gain some leverage when its own companies try to do deals overseas.